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0-SFCPA-REG > Federal Taxation-Individuals (15-25%) > Flashcards

Federal Taxation-Individuals (15-25%) Flashcards

1
Q

What is the tax-benefit rule for casualty losses?

A

if taxpayer deducted casualty loss (federally declared disaster area) in a prior period, and ends up receiving the money in a later year, reimbursement needs to be included in income because the expense provided a tax benefit

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2
Q

What types of interest income are exempt from federal income taxes?

A
  • interest on state obligations
  • interest on municipal bonds
  • interest on state bonds
  • interest on county bonds
  • interest on EE savings bonds (if were issued after taxpayers 24th birthday, is sole owner, incurred higher education expenses in year of redemption)
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3
Q

When does rental income and expenses not need to be included in gross income?

A

if rented out less than 15 days per year

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4
Q

How do estimated accrued income items get reported?

A

estimated/accrued in year known, if larger amount actually received in a following year, difference is taxable in the year received

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5
Q

When can employee benefits-discounts be excluded from income?

A
  • value is up to 20% of services

- no more than the average gross profit percentage for goods

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6
Q

When can employee benefits-insurance premiums be excluded from income?

A
  • group term life insurance (up to $50,000 coverage)
  • health insurance premiums
  • disability insurance premiums
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7
Q

When can employee benefits-fringe benefits be excluded from income?

A
  • meals/lodging for convenience of employer
  • working condition expenses (provided by employer that would be deductible if employee had paid the expense)
  • de minimus fringes
  • employee discounts
  • employee gifts under $25
  • safety/achievement awards
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8
Q

What are some exclusions from gross income?

A
  • gifts received (except from employer to employee)
  • scholarships (if not required to work as part of)
  • child support/alimony
  • workers compensation money received
  • life insurance proceeds
  • dividends received from life insurance policy (up to amount of premiums paid)
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9
Q

What are some separately stated transaction items that will flow-through to K1 for shareholders/partners?

A
  • charitable contributions
  • section 179 write-off
  • gains and losses on sale of equipment
  • rental activities
  • tax credits
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10
Q

What is relationship between deducting losses in an S Corporation/Partnership and their existing basis?

A

shareholder/partner can only deduct losses up to extent of their basis in corporation/partnership

ex: basis = $10,000 (100% owner). business loss = $40,000. can only deduct $10,000 loss.

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11
Q

What are deductions FOR AGI?

A

lower your gross income to arrive at AGI (page 1 deductions - above the line items)

  • business/trade expenses
  • rent/royalty expenses
  • 50% self employment tax
  • 100% self employment medical insurance premiums
  • retirement plan contributions
  • HSA contributions
  • student loan interest
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12
Q

What are deductions FROM AGI?

A

itemized deductions (Sch A deductions)

  • medical expenses (7.5% in excess of AGI)
  • qualified residence interest (home mortgage) ($750,000 indebtedness limit)
  • state income taxes
  • property taxes (max taxes = $10,000)
  • charitable contributions (60% of AGI)
  • casualty losses (formula for deduction amount)
  • employee business travel
  • business gifts ($25 per customer)
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13
Q

What is considered a passive activity?

A

rental real estate or a business in which the taxpayer does not materially participate (business ventures)

test for materially participating = putting over 500 hours in the year, or at least 100 hours but is more time than anyone else in the business

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14
Q

How are passive activity losses accounted for (not for rental real estate)?

A

passive activity losses are limited to income generated from the activity

passive losses from one activity, can offset income from a different passive activity

excess passive activity losses can be carried forward and used in future years when there is passive income or until property is disposed of in a taxable transaction

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15
Q

How are passive activity losses accounted for, for rental real estate?

A

deductible amount is limited to $25,000 in one year (person must own more than 10% of rental activity & actively participate)

if AGI is above $100,000, then the $25,000 is reduced by 50% of AGI above $100,000 (if at $150,000 gross income, there would be no deduction)

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16
Q

What is the exception to passive activity losses for rental real estate, if for a real estate professional?

A

passive activity limitations do not apply, IF:

  • more than 50% of personal service’s during the year were performed in real property business/trades in which they materially participate, AND,
  • spends more than 750 hours performing real property business/trades in which they materially participate
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17
Q

When can you deduct losses and bad debts?

A

when completely or partially useless

includes:

  • non-business debt (must be actual loan)
  • business debt (direct write off method required)
  • assets (sold for no consideration)
18
Q

What are the rules for capital losses?

A

up to $3,000 can be deducted against ordinary income, rest is carried forward indefinitely

19
Q

What are the rules for NOLs?

A

no carryback, carry forward indefinitely (for business/trades)

when NOL is applied, can only be applied up to 80% of income, rest is carried forward

20
Q

What are the rules for excess business losses?

A

losses from business activity cannot exceed $262,000 single/$524,000 married. disallowed in year occurred, added to NOL to carryforward.

21
Q

What are the rules of at-risk loss limitations?

A

can claim loss only up to when the loss equals your “at risk” amount - considered at risk for the amount of cash they’ve contributed to an activity, the adjusted basis of property they’ve contributed, or any debt they are personally liable for as a part of this activity.

ex: have passive investment of $20,000 and it loses $5,000 per year, you can only claim that loss for 4 years (4 x $5,000 = $20,000)

22
Q

What are the rules for gambling losses?

A

can only be deducted up to amount of gambling winnings

ex: lost $5,000, won $2,000, allowed to deduct $2,000 of losses.
* expenses related to gambling (traveling to/from casinos) can also be included in losses

23
Q

What are some rules that prevent taxpayers from benefitting by filing married filing separately?

A

neither spouse can:

  • claim earned income credit
  • claim education credit
  • claim child credit
  • claim other dependents credit
24
Q

What are the rules for surviving spouse filing status?

A

surviving spouse can use joint rates for 2 years after spouse has passed. surviving spouse must provide >50% of costs of maintaining household for their child.

year of death = married filing joint
year after = surviving spouse
2 years after = surviving spouse
3 years after = single
*unless re-marries
25
Q

Who qualifies as a dependent?

A
  • qualifying child
  • qualifying relative
  • be a US Citizen/US National/US Resident/Resident of Canada/Mexico
  • only be claimed by one taxpayer
  • not filing jointly with another taxpayer
26
Q

What are ways to determine if child is qualified as dependent?

A
  • relationship test: must be natural/step/adopted/foster child. can also be: sibling/stepsibling or the offspring of any of these.
  • residence test: must have same residence >50% of year
  • divorced parents: parent with custody or >50% gets to claim.
  • age test: must be under 19, or under 24 if full-time student for at least 5 months of tax year. no age limitation if permanently disabled.
  • not self supporting: dependent must not have provided >50% of their own support
27
Q

What are ways to determine if relative is qualified as dependent?

A
  • provides >50% of support
  • no one person provides >50%, then any individual who provides >10% can claim if other support-providers consent
  • dependent must have gross income
28
Q

What constitutes support?

A
  • food
  • clothing
  • lodging
  • medical costs
  • recreational costs
29
Q

What are the standard deductions for 2020?

A
  • single: 12,400
  • MFJ: 24,800
  • MFS: 12,400
  • HOH: 18,650
30
Q

What are the standard deductions for 2021?

A
  • single: 12,550
  • MFJ: 25,100
  • MFS: 12,550
  • HOH: 18,800
31
Q

What are the additional standard deductions for 2021?

A
  • if blind, additional ($1,700 if single/HOH, $1,350 if MFJ/MFS)
  • if over age 65, additional ($1,700 if single/HOH, $1,350 if MFJ/MFS)
32
Q

What is the child tax credit for 2020?

A

gives $2,000 credit for each qualifying child under age 17 (for dependent, step, or grandchildren)

max refundable amount per credit is $1,400

no credit for married taxpayers with AGI >$400,000, or >$200,000 for all other taxpayers

33
Q

What is the family tax credit for 2020?

A

$500 nonrefundable credit for certain dependents who do not qualify for full child tax credit (over age limit, disabled child, etc.)

could be qualifying relative, child between 17-19, or under age 24 & full-time student for 5 months of year

34
Q

What is the American Opportunity education credit?

A

$2,500/year for each eligible student

100% of first $2,000 and then 25% of the next $2,000

student must be enrolled at least half-time basis. credit is only for the first 4 years postsecondary education. only applicable if individual is not claiming the lifetime learning credit for same tax year.

35
Q

What is the Lifetime Learning education credit?

A

up to maximum $2,000/year for each eligible student

20% of education expenses up to maximum of $10,000

student must be taxpayer, spouse, dependent listed on taxpayers tax return. can be claimed for unlimited # of years

36
Q

What is the Dependent Care/Childcare credit?

A

nonrefundable credit for portion of expenses for caregiving while taxpayer is working

child must be under age 13 or a disabled adult and must live with taxpayer >50% of year

up to 35% of $3,000 for one child/dependent, or up to 35% of $6,000 for 2+ children/dependents. credit percentage is reduced by 1% for every $2,000 increment of AGI above $15,000 and bottoms out at 20% if AGI is above $43,000.

37
Q

What is the Adoption credit?

A

nonrefundable credit allowed for adoption expenses up to $14,400 if taxpayers income is

38
Q

What is the Earned Income Credit (EIC)?

A

way of reducing tax burden of low-income taxpayers

  • % of credit increases based on # of qualifying children taxpayer has
  • credit based on earned income
  • MFS not eligible for credit
  • credit can be refunded
  • if no qualifying child, filer must be between ages 25-64 & not claimed by another taxpayer
39
Q

What is proper reporting of income and expenses for a hobby?

A

as of 2018 & later, income from a hobby is reported, expenses are not allowed as a deduction

40
Q

What are limitations on rental losses (activities in which you participate)?

A

can deduct up to $25,000 of losses against your income. $25,000 is reduced by 50% of AGI above $100,000.

ex:
AGI = 120,000
rental loss = 30,000
over limit = 20,000 (x 50% = 10,000)
allowed to deduct = 15,000 (25,000-10,000)
41
Q

What are the rules on excluding gains on sale of a principal residence?

A

can exclude up to $500,000 of gains from income

*if meet the ownership and use tests (owned home for at least 2 years and lived in home for at least 2 years)

0-SFCPA-REG (5 decks)

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